Illinois Supreme Court strikes down 'Amazon tax'

SPRINGFIELD — The Illinois Supreme Court on Friday said a state law ensuring collection of the state sales tax on some Internet sales is unconstitutional.

The court ruled 6-1 in a case involving the state's so-called "Amazon tax" that was intended to equalize sales tax collections on purchases made from out-of-state companies on the Internet with those made at brick-and-mortar stores.

Justice Lloyd Karmeier filed a dissenting opinion.

The court's majority said the federal Internet Tax Freedom Act pre-empted the state's Main Street Fairness Act, which was passed by the Legislature in 2011.

"The relevant provisions of the act therefore impose a discriminatory tax on electronic commerce within the meaning of the (federal law)," the court concluded.

Illinois residents are required to pay the state sales tax on Internet purchases, but the money usually goes uncollected unless a retailer charges the tax at the time of the purchase. Taxpayers can also voluntarily pay the sales tax they owe when they file their state income tax returns, but few do.

Many retailers do not charge the sales tax at the time of the purchase, which critics say allows them to sell products for less than brick-and-mortar stores can sell the identical items.

Lawmakers attempted to address this in 2011 with the state law that changed the definition of what it meant to have a physical presence in the state and thus be required to collect sales tax at the time of a purchase. The bill passed the House and Senate by wide margins and was signed by Gov. Pat Quinn. Senate President John Cullerton, D-Chicago, predicted the new law would bring an additional $150 million into state coffers.

Performance Marketing Association Inc., one of the companies affected by the law, sued. A Cook County judge sided with the company, and the state Supreme Court upheld that decision Friday.

The state Department of Revenue issued a statement that it is reviewing the decision and is "considering several options, including further court review of this law and whether amending the law could address the court's concerns. We will also explore other options to create a level playing field for all local businesses, whether they are physically located here or on the Internet."

Revenue spokeswoman Sue Hofer said the department does not know how much revenue the law produced, because sales tax collections are not segregated between Internet and other sales.

"We do know that several dozen companies have filed to collect the sales tax from their online sales who were not doing it before," Hofer said.

Cullerton's office said the ruling "highlights the need for federal action to level the playing field for traditional retailers. We will review the decision and consult with the Illinois Attorney General's Office on state legislative remedies that may be available to the General Assembly."

The Illinois Retail Merchants Association, which represents brick-and-mortar retailers in the state, pushed for passage of the law. IRMA president David Vite said he hopes the state will appeal the ruling.

"This underscores the need for action in Washington to quickly pass the Marketplace Fairness Act," Vite said. "Working with a hodgepodge of laws around the country is intolerable, and brick-and-mortar retailers continue to be at a substantial disadvantage to their online competitors."